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Determinants of China's Private Consumption: An International Perspective

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Author Info

  • Kai Guo
  • Papa M'B. P. N'Diaye
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Abstract

This paper gauges the key determinants of China's private consumption in relation to GDP using data on the Chinese economy and evidence from other countries' experiences. The results suggest there is nothing "special" about consumption in China. Rather, the challenge is to explain why the conditioning variables-notably a low level of service sector employment, the level of financial sector development, and low real interest rates-are so different in China relative to other countries' historical experience. The results suggest, in particular, that efforts to further raise household income and the share of employment in the services sector, as well as to develop capital markets, including liberalizing interest rates and creating alternative savings instruments are likely to have the biggest impact on consumption. Other mechanisms to raise household income and mitigate household-specific risk (such as by improving the healthcare and pension systems) also have a role to play.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/93.

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Length: 16
Date of creation: 01 Apr 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/93

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Related research

Keywords: Private consumption; Economic models; Income distribution; Private savings; Services sector;

This paper has been announced in the following NEP Reports:

References

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  1. Robert J. Barro, 1980. "Output Effects of Government Purchases," NBER Working Papers 0432, National Bureau of Economic Research, Inc.
  2. Paul R. Masson & Tamim Bayoumi & Hossein Samiei, 1995. "International Evidence on the Determinants of Private Saving," IMF Working Papers 95/51, International Monetary Fund.
  3. Marcos Chamon & Eswar Prasad, 2008. "Why are Saving Rates of Urban Households in China Rising?," IMF Working Papers 08/145, International Monetary Fund.
  4. Franco Modigliani & Shi Larry Cao, 2004. "The Chinese Saving Puzzle and the Life-Cycle Hypothesis," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 145-170, March.
  5. Tarhan Feyzioglu, 2009. "Does Good Financial Performance Mean Good Financial Intermediation in China?," IMF Working Papers 09/170, International Monetary Fund.
  6. Steven Vincent Dunaway & Vivek B. Arora, 2007. "Pension Reform in China: The Need for a New Approach," IMF Working Papers 07/109, International Monetary Fund.
  7. Shang-Jin Wei & Xiaobo Zhang, 2011. "The Competitive Saving Motive: Evidence from Rising Sex Ratios and Savings Rates in China," Journal of Political Economy, University of Chicago Press, vol. 119(3), pages 511 - 564.
  8. Andrew Dean & Martine Durand & John Fallon & Peter Hoeller, 1989. "Saving Trends and Behaviour in OECD Countries," OECD Economics Department Working Papers 67, OECD Publishing.
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Cited by:
  1. Gu, Xinhua & Tam, Pui Sun, 2013. "The saving–growth–inequality triangle in China," Economic Modelling, Elsevier, vol. 33(C), pages 850-857.

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